Stocks Of Oil Companies Surge Following Attack On Saudi Oil Facility

09/16/2019

Following the attack on two oil refining facilities in Saudi Arabia which reduced the production capacity of the largest oil producer by almost 50 per cent, there was a surge in the share prices of all of the major oil companies on Monday.

The incident has also increased tensions in the Persian Gulf region because soon after the drone attack on the oil plants in Saudi Arabia, United States President Donald Trump put the blame of the attacks on Iran which has also raised concerns about the possibility of a military action on by Washington in the region.

Oil stocks jumped across the board over prospects of increase in oil prices because of the immediate shortage supply to the global market. There was a 20 per cent jump in the Brent crude oil shot on opening trading in Asia which was among the highest increases on record. It later came down to 8.3 per cent by the time markets opened in Europe. At the time oil pushed to $US72 a barrel, but later settled to about $US65.

There as a 3.3 per cent surge in the stocks of Exxon Mobil in pre-market trading in London. There was also a 23.3 per cent hike in the FTSE 350 oil and gas index driven by a 3.8 per cent rise in stocks of BP and a 2.9 per cent jump in the sto9cks of Shell – both of which are listed on the index. Additionally, Chevron marked a 3.4 per cent rise in pre-market, Kinder Morgan a 7.2 per cent spike, Occidental Petroleum a 5 per cent hike and Schlumberger noted a 5.8 per cent increase in their stock prices.

There is still a surge in global crude prices and according to estimates of some analysts, the price can touch and even cross the US$100 a barrel mark because of a likely supply side shortage in the global oil market following the reduction of production capacity in Saudi Arabia.

“Three days ago, oil prices hitting $US100 a barrel was almost an impossible scenario. Not anymore,” said Hussein Sayed, chief market strategist at FXTM. “That’s not just because of the current disruption from Saudi Arabia, but the fact that the chances of military conflict in the region have risen dramatically. US Secretary of State Mike Pompeo blamed Iran for the drone attacks, and Republican Senator Lindsey Graham said the United States should consider an attack on Iran’s oil refineries. Meanwhile President Trump warned that the US is ‘locked and loaded’.

He added that in case of such statements being continued to be made by the US administration, there would be a significant increase in geopolitical risk premium because any military action against Iran by the US could make the situation in the entire Gulf region very unstable and volatile.

And according to reports, the planned initial public offering by Saudi state owned oil giant Saudi Aramco, slated for launch later this year, could be jeopardized because of the latest attacks on the two oil facilities. It is estimated to be one of the biggest IPO ever as the company is seeking to raise as much as US$100 billion.